FRIDAY JANUARY 20: First half services deficit surges to $1.3 billion

KARACHI: The country's services trade deficit has registered exceptionally high growth of 274 percent to $1.3 billion during the first half of current fiscal year (FY12), followed by high imports and slowdown in exports. "The performance of services sector trade is deteriorating gradually, which will result in burden on current account balance," analysts said.
They said the country has already witnessed a high current account deficit of $2.154 billion in first half of current fiscal year because of high deficit of goods and services sector. Exports of service sector are on decline and imports are increasing gradually, which will raise the deficit, so some major steps are required to improve exports, they added.
Analysts said a massive increase of over 274 percent in services deficit during the first half is a matter of concern and there is need to develop a long-term policy to curtail the higher deficit of services deficit to support current account. According to State Bank of Pakistan, services sector trade deficit posted an increase of 273.6 percent during July-December of current fiscal year. With current surge, services sector deficit mounted to $1.304 billion in first half of fiscal year 2011-12 (FY12) as compared with $349 million in corresponding period of last fiscal year.
The detailed analysis revealed that both component of services sector ie exports and imports are not performing well as the exports have registered a decline of 22 percent and imports posted an increase of 6 percent during the period under review. The country's services sector exports fell to $2.586 billion in July-December of FY12 against $3.315 billion in the same period of FY11, depicting a decline of $729 million.
However, imports registered a growth of $226 million during the period under review. Overall services sector imports reached $3.89 billion during first half of current fiscal year compared with imports of $3.664 billion in the corresponding period of FY11.
Month-on-month basis, the services sector has performed well as only a deficit of $85 million was witnessed in December 2011 along with $560 million exports and $645 million imports. During November 2011 deficit stood at $253 million. Sector-wise analysis revealed that payments on account of government service, transportation, travel and information technology are responsible for rising services trade deficit.
The country earned $797 billion on account of transportation services, $167 million from travel, $103 million from communication, $11 million from construction services, $126 million from Information Technology (IT), $32 million through financial services and an amount of $935 billion earned on account of government services during July-November of fiscal year 2011-12.
On the other hand, transportation payments stood at $1.820 billion, travel $633 million, communication $79 million, construction $17 million, insurance $129 million, financial sector $54 million and IT sector payments stood at $83 million during the period under review. In addition, some $64 million was paid on account of royalties and $411 million were paid for government services during first half of current fiscal year.